Now , Here’s Some Facts From a Real American Small Businessman

Here is a letter by a small businessman that was sent to the Wall Street Journal and published today. I suspect a lot of this holds true for many small bussiness people in the western industrialized world.


How friendly is the United States to small business? Here is a summary of just some of the issues facing small businesses like mine.

An open letter to all politicians about small business in this country

You all love to talk about how much you support small business; the reality is the opposite. The economy is changing rapidly and is vastly different than just a few years ago. Many of the factory jobs in this country have gone and will not return. Computer technology and automation will soon eliminate thousands more jobs (think truck drivers, taxi drivers, office workers, etc…). Because there will be fewer middle-class jobs, many people who never considered working for themselves will be forced to become sole proprietors or open a small business. It is therefore critically important that you make it easier for these people to do so. A rare few of them may grow into big companies, but if they aren’t given help to even get off the ground, then the odds of two guys in a garage starting the next Apple will be zero. Right now instead of creating incentives for people to start their own small business, you create nothing but hurdles, allow me to give some examples.

Excessive Social Security burden

Many years ago when I quit a perfectly good job to start my own small business, I was shocked to learn that I had to pay both my share and what had been my employer’s share of Social Security. If you wanted to create the perfect disincentive to discourage people from taking the leap to start a small business or become self-employed, it would have been difficult to invent a better one. If you really want to help people start their own business, he would eliminate this double-taxation burden.

High tax rates

There is finally talk (but it’s still just talk) about lowering corporate tax rates and letting small “pass-through” businesses get this break, that’s a great step in the right direction but it’s not enough. We’ve had progressive tax rates on personal income for a long time, but why not for businesses? Why does it make sense to tax low-income people less but not apply the same logic to small business? I suggest the same 3 tier system that is being suggested for income tax be applied to business income. Most sole proprietors will be fortunate to make $100K a year, so set the lowest rate for these folks. Most small businesses will have an annual income of under $5 or $10 million, so have a middle rate for them. Save the highest tax rate for bigger companies. And put an end to the shenanigans of large companies like Apple, GE, Google that avoid and evade taxes by employing tricks like “double Irish with a Dutch sandwich” because they can afford tax lawyers who know how to rig the game. Better yet, eliminate business tax altogether and replace it with a VAT (the same goes for income tax, you should incentivize people to make money, not punish them for it).

Capital Gains taxes

So you’ve busted your butt for 20 or 30 years running a small business or sole proprietorship, now you’d like to retire and enjoy life. Between state, federal and local taxes you’ve probably paid 50% or more of your income in taxes, but that’s not enough for politicians. If you’ve been lucky enough to have created a business you can sell, now you’ll get to enjoy paying another tax on the capital gain from the sale. Is this fair? Of course it’s not. It’s just another penalty imposed on hard-working folks by politicians who don’t think we are paying “our fair share.” If you can’t eliminate capital gains taxes on the sale of a business, at least make them progressive, with similar tiers to those mentioned above. There should be zero capital gains tax on any small business that’s sold for under $5 million dollars or so.

Excessive health care costs

I work for myself and have to pay my own medical expenses. Before the “affordable care act” I was paying about $200 per month for a high deductible policy. It was far from perfect but it got so much worse under the “Affordable” care act. I now pay over $400 a month, my deductible went from $5,000 to over $6,000 and my out of pocket costs for care have skyrocketed. At this rate, I will go broke soon, and I am healthier than average. I don’t know how any normal working family or small businessman can possibly afford these rates without going bankrupt. You need to scrap the ACA and implement a rational single-payer plan that puts more of the cost burden onto smokers, heavy drinkers, and the obese who add the most cost to the system at the expense of those of us who eat right and exercise. As the president pointed out, Australia has a better health care system than we do, and it’s single payer. We have the most inefficient, opaque, bloated, overpriced health care/insurance system in the world, and the ACA only made it worse. The Republicans have rightly complained about this for the past six years and have had six years to create a solution yet they have nothing better to offer. They are nothing but hypocrites, liars, and frauds.

Income Tax Filing

I have to spend dozens of hours and thousands of dollars for a tax accountant each spring to prepare my taxes because I cannot possibly understand how to do it myself, and I have a master’s degree in engineering. I also have to remember to pay quarterly estimates, even if my income in not predictable or fluctuates (which it does for most small businesses) or else I get dinged with penalties. This is a time and cost burden that makes it very hard to run a small business. If you really want to support small business, reform the tax code, eliminate ALL deductions, and make it simple to file and pay once per year instead of quarterly. The current tax code is an abomination and should be scrapped.

Excessive import duties

There is a lot of talk lately about a “border adjustment tax” (BAT), a fancy name for an import duty on imported products. I design luggage and I need to contract out the manufacturing to companies that specialize in making luggage. All of these factories just happen to be in Asian countries. Because of this I am charged almost 18% on my cost of goods for all my imported luggage. Last year these fees came to over $100,000. The only reason I can see for these fees is government greed. There is no luggage manufacturing industry in the USA that is being protected. This is another huge burden that makes it difficult to survive in the ultra-competitive luggage business. Congress and President Obama had a chance remove this burden last summer, and they did what they do best: nothing. If you do impose a border adjustment tax, will it be on top of the 18% I’m already paying? If so you will put me out of business. If you really want to support small business, you would eliminate all tariffs (or BAT, or whatever you choose to call the tax) for companies below a certain size. For example, eliminate all tariffs on companies for their first $10 million dollars of imports annually. This would provide actual help and give small companies a chance to survive and grow into bigger companies.

Excessive customs inspection fees for imported products

My company, SkyRoll, designs luggage that is made in Asia and imported by ship to the USA. It is sold at all Men’s Wearhouse stores and Jos. A Bank stores. A recent shipment was delayed for almost 2 weeks at the port of Los Angeles for extra customs inspections. The container was first x-rayed, and since that apparently wasn’t good enough, it was then opened and inspected by hand. There was nothing in the container but the same luggage I’ve been importing for 15 years. I was then charged over $2,000 for this “privilege,” in addition to the 18% import duty I already pay. This is not the first time I’ve had to pay for extra inspections that were unnecessary. I understand the need for security but I’m a known importer of the same products for almost 15 years, and this is a terrible cost burden for my small company. These inspections are not necessary, and I should not have to pay for them when I’m already paying excessive and unwarranted import duty on every shipment.

The word “entrepreneur” is endlessly tossed around by politicians who know nothing of how hard it is to be an entrepreneur. You all love to say you encourage entrepreneurship, but the reality is you stand in the way. Most small businesses either fail or stay small because it is really hard to grow a business, and because of all the burdens you put on us. Quit your job and try it yourself if you don’t believe me.

Don Chernoff
President & Founder
SkyRoll Luggage


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